Discussion:Treatment of Shareholder Paying C-Corp Expense Using Personal Funds

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Discussion Forum Index --> Accounting Questions --> Treatment of Shareholder Paying C-Corp Expense Using Personal Funds


SmallBizTaxes (talk|edits) said:

13 May 2013
I have a client that is setup as a C-Corp and has paid for the C-Corp expenses using their personal funds (expenses include payroll, payroll taxes). In addition, they have closed bank accounts in one state (where they originally incorporated) and used the funds personally. How would the expenses paid by the shareholder per treated? Currently, the shareholders have loans that due to the corporation. Thanks.

CathysTaxes (talk|edits) said:

13 May 2013
I would suggest that the client loan the C-Corp money so that the C-Corp checking account can be used to pay the bills. I'm not sure of the section, but I do believe if the client uses his personal accounts to pay c-corp bills that the IRS will no longer recognize him as a c-corp and he can say goodbye to the protection of limited liability protection that a c-corp enjoys.

What does your client's 'corporate minutes book' say about shareholders using their personal funds to pay corporate expenses? Are these out of pocket employee expenses that are reported on form 2106? Reimbursable expenses from the c-corp?

Trillium (talk|edits) said:

13 May 2013
This discussion replaces the one small is started earlier..long user name was causing the usual problems.

SmallBiz: please click "talk" next to your user name above for more info about this.

SmallBizTaxes (talk|edits) said:

13 May 2013
CathysTaxes - Thanks for the reply. No, the expenses are not employee expenses, but rather expenses paid the Shareholder/Employee on behalf of the corporation. I will have to check the minutes to confirm their character.

CathysTaxes (talk|edits) said:

14 May 2013
SmallBiz, the shareholders would be employees of the CCorp.

Captcook (talk|edits) said:

14 May 2013
Cathy's question still stands, but I will phrase it slightly differently: Does the corporation have a policy of reimbursement for expenses paid by employees? If so, the reimbursement needs to occur before the corporation may take the deduction.

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